Michael, from Powell, TN writes:
How will the accounts work?

Julie Goon
Thank you for your question, Michael. This is a good question to start our discussion. An HSA is a tax-free account you can use to save for medical expenses. Because the savings account is coupled with a high deductible health plan you have more control and choice in your health care decisions.

In order to qualify for an HSA, you need to purchase a high deductible health plan with a deductible of at least $1,100 for an individual ($2,200 a family). High deductible health plans generally have lower premiums and do not cover first dollar medical expenses. However, high deductible health plans can pay for preventive care on a first dollar basis which can include annual physicals, immunizations, and other care.

Once you have purchased a qualifying high deductible health plan, you can open an HSA through a bank, insurance company, or other financial institution. When your account is open you and/or your employer may begin making contributions and you can then use your account to pay for qualified medical expenditures.

There are many advantages of HSAs, so I will give you just a few here. HSAs provide tax savings; your HSA can help lower your tax bill and also provides an account that allows your contributions to grow tax-free. HSAs in conjunction with high deductible health plans provide affordable health insurance; by switching to a higher deductible you should be able to lower your monthly premium. HSAs are portable; you can take your HSA with you even if you change or lose your job. And HSAs give you more control and choice; you can choose how and when to contribute to your account and how and where to spend from your account. HSAs help put you in charge of your health care.

robert, from liberty,ms writes:
Will this money stay in my account,or will I lose it every year? What would be the tax advantage.

Julie Goon
That’s a great question, Robert. Money contributed to your HSA will stay in your account from year to year just like an IRA. HSAs do not have a “use it or lose it” rule.

Regarding your second question, HSAs have multiple tax advantages. In fact, HSAs provide triple tax savings! First, you receive a tax deduction when you contribute to your account. Second, any investment earnings in your account are tax-free. And third, withdrawals from the account for qualified medical expenses are tax-free.

If you would like to see an estimate of how much you will save in taxes, follow this link to the Department of Treasury: http://www.ustreas.gov/offices/public-affairs/hsa/pdf/hsa-examples.pdf

Tyrone, from Florida writes:
Here is a very important question: What does this plan mean for me?

I am 23-years-old and pay for my own health insurance coverage. I want to be sold on the President's plan because, as everyone has acknowledged, we really do need healthcare reform in these united states of America.

Julie Goon
Tyrone, thank you for the question. HSAs and high deductible health plans provide you with the opportunity to purchase affordable health insurance and also save money in a tax-free account for future medical expenses.

Since you are purchasing insurance on your own, you would also greatly benefit from the President’s proposed Standard Deduction for Health Insurance. In his State of the Union address, the President proposed to level the playing field for Americans like yourself who purchase health insurance on their own instead of through their employers. The current tax code is unfair to Americans who do not get health insurance through their jobs because they are forced to purchase health insurance with after-tax dollars. In other words, unlike individuals who receive health insurance through their job, an individual such as yourself receives no help from the tax code.

The President’s proposal to create a Standard Deduction for Health Insurance would change this unfair system by exempting your first $7,500 of income ($15,000 for a family) from taxation. That means you pay neither income nor payroll taxes on your first $7,500 of income. For someone like yourself who currently purchases health insurance on his own, the President’s policy would immediately and substantially decrease your taxes and would greatly reduce the after-tax cost of health insurance.

Linda, from Marion, Indiana writes:
Julie: Please let the President know that I am most definitely in favor of medical savings accounts, and support him in his efforts on this subject. Is there a website where one may read his proposals on medical savings accounts?

Julie Goon
Thank you for your support, Linda! Here are some links that will provide background information on Health Savings Accounts, as well as the President’s other health care policies.

The Department of the Treasury has lots of background information on HSAs here: http://www.ustreas.gov/offices/public-affairs/hsa/

You can find background information on many of the President’s other health care policies here: /stateoftheunion/2006/healthcare/index.html

And you can find information about the health care policies the President announced in the State of the Union here: /infocus/healthcare/

leon, from arlington va writes:
For tax purposes, does a tax payer receive a tax credit or a deduction for the deductable portion of an HSA?

Julie Goon
Thank you for the question, Leon. Individuals receive a tax deduction for contributions to their HSA. This means that contributions (up to a certain limit) to your HSA are deducted from your total income to determine your adjusted gross income for tax purposes; these contributions are deductible whether or not you itemize deductions. In other words, you don’t have to pay taxes on money you put in your HSA, and then it earns interest tax-free too.

For single coverage, the 2007 contribution limit is $2,850; the family coverage limit is $5,650. Contributions can be made until the tax return due date for that year (April 17, 2007, for 2006). This means you still have time to make contributions for 2006!

If you would like more information about how this tax deduction works, the IRS website has more information here: http://www.irs.gov/publications/p969/ar02.html#d0e159

erica, from los angeles, california writes:
Dear Ms. Goon, I am currently a second year law student and writing a paper on medical malpractice reform at the federal level. Can you tell me what's going on in the White House concerning this subject? I've looked up bills on thomas.gov but there are so many bills that essentially say the same thing. I just wanted to know if there is currently any law on medical malpractice liability at the federal level and what is being proposed as of now? any insight that you could give me would be much appreciated.thank you, Erica

Julie Goon
Erica, thank you for your question. The President believes the medical liability system should be reformed to be more fair, predictable, and timely. Medical liability insurance rates are a burden on both physicians and patients; physicians are pressured to practice defensive medicine to avoid lawsuits and patients face increased health care costs.

The President has proposed three specific policies to help rectify this problem. First, punitive damages should be reserved for egregious cases and non-economic damage limited to a reasonable amount. Second, cases based on old claims should not be brought to court many years later. And third, defendants should pay judgments in proportion to their fault.

The House has passed these reforms a number of times, but unfortunately the Senate has not yet done so.

Fred, from Irvine, CA writes:
Hi, Ms. Goon: Thanks for your service. I have always been intrigued by the HSAs. They seem to presume that people have an extra $5,000 to put into their HSA. While the wealthy may, can you tell me how a person who makes $50,000-75,000 per year, and lives check to check can realistically start up an HSA and maintain it?

Julie Goon
Fred, thank you for your question. Contributing $5,000 up front to an HSA is certainly a daunting challenge for many Americans; fortunately, you do not need to have $5,000 on hand in order to open and benefit from an HSA.

First, you do not need to contribute the maximum ($5,650 for family coverage) in order to open an HSA. You can contribute as much or as little as you can afford, and you can spread your contributions throughout the entire year.

Second, HSAs are coupled with high deductible health insurance which generally has lower premiums than traditional insurance. This means that your monthly heath insurance costs will be lower than before, and you will have more money available which you can use to contribute to your HSA. (For instance, the average premium for an HMO single coverage plan in the employer market was $4,049 in 2006. The equivalent premium for a high deductible health plan was $3,405.)

Third, your employer can also contribute to your HSA. An employer’s contributions are excludable from your gross income for both income tax and payroll tax purposes. In 2006, the average employer contribution for single coverage was $689; for family coverage the average employer contribution was $1,139.

If you are interested in seeing how the cost of a high deductible health plan will compare to your current insurance, go to a health insurance comparison site on the internet (like healthinsurance.com) and see how much a high deductible plan will cost you. The premiums are often significantly lower than traditional insurance, and you can use these savings to contribute to your tax-free HSA.

Fred, from California writes:
Hi, Ms. Goon: Thanks as always for your work. One of the fundamentals of the President's HSA plan seems to be that people will shop more carefully for health care if they have to pay for it. However, many of us don't know the first thing about selecting competing health care. For example, I have an autistic boy - 11. One doctor says an MRI might work to determine if another treatment is useful, another wants to provide him Fluvoxamine, and another wants to try behavioral therapy. How am I supposed to realistically decide between these choices, and then, negotiate with an MRI provider and the drug companies and retailers, all who have huge, huge financial resources, while also dealing with guilt about not doing enough for him?

Julie Goon
Fred, thank you for the question. I’m sorry you are having trouble navigating the health care system; I understand it often can be confusing and intimidating. This is why the President is committed to using technology to make the health care system more transparent. Patients should be able to get information about the quality and price of health care; this is often more difficult than it should be.

Fortunately, with an HSA you won’t be navigating the health care system alone. With an HSA you will get your insurer’s negotiated prices (which are usually much lower than those quoted to the uninsured); you won’t have to negotiate prices on your own. HSAs are often accompanied by tools (usually online) that provide you with information that can help you and your doctor make the choices that are right for you and your child. Eighty-six percent of HSA holders have access to data on the quality of specific hospitals. Eighty-eight percent have access to tools that compare cost information, like negotiated rates, drug prices, and procedures. And 72 percent of HSA plans offer personal health records online.

As the HSA and high deductible health plan market continues to grow and develop, we hope these tools will become more widespread and easy-to-use.

Anita, from Minnesota writes:
I am interested in the enrollment growth in high deductible plans. Do you have any data that shows 2004 thourgh 2008 estimated?

Julie Goon
Thanks for the question, Anita. I don’t have that exact information, but the report released yesterday by America’s Health Insurance Plans shows the growth of HSAs and high deductible health plans over the last year. There are now 4.5 million people with HSAs, and 27 percent of people who buy HSAs in the individual market were previously uninsured. Two years ago there were just over 1 million people covered by HSAs; in September of 2004, less than half a million people were covered by HSAs.

You can read the full report about the growth of HSAs this last year here: http://www.ahipresearch.org/PDFs/FINAL%20AHIP_HSAReport.pdf.

Mike, from Washington, D.C. writes:
Julie, Thank you for taking questions. I recently left my job that provided health insurance and have transitioned to a freelance writer. I have been searching online for HSA's as well as standard health insurance plans, but I'm not sure what is the best choice. I am a 40 year old unmarried male and do not have children. I am in very good health and don't forsee any medical problems, but may need some dental work.

I'm excited about the idea of HSA's, I'm just not sure what the best option for me is. Thank you

Mike

Julie Goon
Mike, thank you for your question. Many people find using an online health insurance comparison website helpful when shopping for health insurance. HSAs and high deductible health plans have many advantages; however, health care is obviously a very personal matter and what is best for you will depend on your own personal preferences, such as whether you want first-dollar coverage (and higher premiums) or a high deductible (and lower premiums) and what type of plan you prefer, such as an HMO or a PPO.

Whatever you end up choosing, though, the President’s proposed Standard Deduction for Health Insurance would save you lots of money since you are now purchasing health insurance on your own. When you were getting health insurance through your employer, it was with pre-tax dollars; now that you are purchasing health insurance on your own, you are forced to use post-tax dollars. That’s not fair, and the President is working to level the playing field so you will be able to get the same tax deduction as someone receiving health insurance through their employer.

Don, from Cheney, WA writes:
My wife and I are self employed and we purchase health insurance independently. This means that we have a pretty bare bones, non-HSA, major medical policy - it is not cost effective (or affordable) for us to buy a more comprehensive policy. Our current insurance provider and our past provider - both certified by the Washington State Insurance Commissioner, provide HSA savings account qualified policies very similar to our current policy. I would like to have a HSA policy, but they cost more than conventional major medical policies, even before you contribute to the savings account portion.

In conversations with both insurers, I have been told that the difference comes from complying with the HSA regulations. Can you speak to this issue?

Julie Goon
Thanks for the question, Don. It is unusual that the HSAs you have been shown are more expensive than other plans because high deductible health plans (the insurance that accompanies an HSA) tend to be less expensive than traditional health insurance. According to a report released yesterday by America’s Health Insurance Plans, the average premium for the best-selling HSA product for ages 30-54 in the individual market is $2,106. The average premium for single coverage in the individual market as a whole is greater than $2,600 (this is a rough calculation I made by inflating the average premium from AHIP’s August 2005 survey into current dollars).

The statute does prescribe limits on the insured’s exposure under an HSA-qualified plan. For example, if you have a plan with an out-of-pocket exposure greater than $11,000, it would not be HSA-eligible and may be less expensive than an HSA-eligible plan.

If you are having trouble finding an affordable high deductible health plan that qualifies for an HSA, a health insurance comparison website may be helpful to determine what options are available in Washington.